United States District Court, Southern District of New York
May 31, 2001
UNITED MAGAZINE COMPANY, THE STOLL COMPANIES, MICHIANA NEWS SERVICE, INC., GEO. R. KLEIN NEWS CO., CENTRAL NEWS COMPANY, AND THE SCHERER COMPANIES, PLAINTIFFS,
MURDOCH MAGAZINES DISTRIBUTION, INC., TV GUIDE DISTRIBUTION, INC., CURTIS CIRCULATION COMPANY, COMAG MARKETING GROUP, LLC, HEARST DISTRIBUTION GROUP, INC., KABLE NEWS COMPANY, INC., TIME DISTRIBUTION SERVICES, INC., WARNER PUBLISHER SERVICES, INC., AND CHAS. LEVY CIRCULATING CO., DEFENDANTS.
The opinion of the court was delivered by: Allen G. Schwartz, United States District Judge:
OPINION AND ORDER
Plaintiffs, related companies in the magazine and book wholesale
business, allege that defendants, a wholesaler and various magazine and
book distributors, have violated antitrust laws, breached certain
contracts, and committed certain torts. The wholesaler, defendant Chas.
Levy Circulating Co. ("Levy"), and the distributor defendants
(collectively the "Distributors") each move, pursuant to Rule 12(b)(6),
to dismiss the claims against them respectively in the Amended
Complaint. For the reasons set forth below, defendants' motions are
I. THE PARTIES
Plaintiff United Magazine Company ("Unimag") is an Ohio corporation
with its principal place of business in Ohio. (Am. Compl. ¶ 6.)
Unimag directly or indirectly owns of the stock of each of the other
plaintiffs. (Id.) Plaintiff The Stoll Companies ("Stoll") is an Ohio
corporation with its principal place of business in Ohio. (Id. ¶ 9.)
Plaintiff Michiana News Service, Inc. ("Michiana") is a Michigan
corporation with its principal place of business in Ohio. (Id. ¶ 11.)
Plaintiff Geo. R. Klein News Co. ("Klein") is an Ohio corporation with
its principal place of business in Ohio. (Id. ¶ 13.) Plaintiff
Central News Company ("Central") is an Ohio corporation with its
principal place of business in Ohio. (Id. ¶ 15.) Plaintiff The Scherer
Companies ("Scherer") is a Delaware corporation with its principal place
of business in Ohio. (Id. ¶ 19.)
Defendant Murdoch Magazines Distribution, Inc. and defendant TV Guide
Distribution, Inc. (together "Murdoch") are Delaware corporations with
their principal places of business in New York. (Id. ¶¶ 24-25.)
Defendant Curtis Circulation Company ("Curtis") is a Delaware corporation
with its principal place of business in New Jersey. (Id. ¶ 26.)
Defendant Hearst Distribution, Inc. and defendant Comag Marketing Group,
LLC (together "Hearst") are Delaware corporations with their principal
places of business in New York. (Id. ¶¶ 27-28.) Defendant Kable News
Company, Inc. ("Kable") is an Illinois corporation with its principal
place of business in New York. (Id. ¶ 29.) Defendant Time Distribution
Services, Inc. ("Time") is a Delaware corporation with its principal
place of business in New York. (Id. ¶ 30.) Defendant Warner Publisher
Services, Inc. ("Warner") is a New York corporation with its principal
place of business in New York. (Id. ¶ 31.) (Time and Warner will
hereinafter together be referred to as "Time Warner."*fn1) Defendant
Levy is an Illinois partnership with its principal place of business in
Illinois. (Id. ¶ 34.)
The facts set forth below are taken from the Amended Complaint. All of
the parties herein are involved in the magazine and book distribution
industry, the structure of which forms the factual background of this
action. Each magazine or book (together "publication") is published by a
specific publisher. (E.g. Time-Warner, Inc. publishes Time.) (Am. Compl.
¶ 38.I.) Each publisher then sells specific publication titles to a
particular distributor. Commonly, publication titles are available from
only one distributor. (E.g. TV Guide is only available from Murdoch.)
(Am. Compl. ¶¶ 38.G, 46.) Distributors then resell the publications to
wholesalers at a discount off of the cover price. (Id. ¶ 52.)
Distributors determine the wholesalers to which titles will be sold, and
in what quantity. (Id. ¶ 46.) Wholesalers, in turn, resell the
publications to retailers at a smaller discount off the cover price than
the wholesalers receive from the distributors. (Id. ¶ 52.)
Wholesalers are responsible, at their own expense, for allocating the
publications among retailers, physically distributing the publications to
retail locations, and arranging the publications in display racks. (Id.
¶¶ 47-48.) Retailers
then sell the publications to consumers at the
cover price. (Id. ¶ 52.)
Any publications unsold at the end of their respective shelf lives are
removed from retail locations by the wholesalers, at the wholesalers'
expense. The wholesalers are then responsible for disposing of the unsold
publications and certifying such disposal to the distributors.
Certification may entail removing the cover of each unsold publication
and shipping the covers back to the particular distributor, or scanning
the UPC codes on the unsold publications and sending the distributor an
affidavit stating that the wholesaler disposed of the particular
publications properly. (Id. ¶¶ 48-49.) Unsold publications also
generate credits back along the chain of sale. That is, retailers receive
credits from wholesalers for each unsold publication; wholesalers receive
credits from distributors; and distributors receive credits from
publishers. (Id. ¶¶ 50, 52.) Under this system, distributors have a
financial incentive to distribute as many copies of the publications as
possible because they receive full credit for unsold publications that
they purchased and are not responsible for the costs of physical
distribution. (Id. ¶ 53.)
Historically, each wholesaler was granted one or more exclusive
geographic territories in which it alone sold publications to retailers.
Any retailer in a given area could purchase publications only from the
single wholesaler with rights to that area. (Id. ¶¶ 44, 56-60.) Under
this system, wholesalers could operate profitably because any losses
incurred supplying smaller, less-profitable retailers were compensated
for by profits made on larger, more-profitable retailers. Over the last
fifty years, the number of both distributors and wholesalers has
decreased, as distributors purchased other distributors and wholesalers
purchased other wholesalers. (Id. ¶ 45.) For example, during this
period Unimag acquired Stoll, Michiana, Klein, and Central. (Id. ¶¶ 9,
11, 13, 15.) Beginning in 1995, one or more of the Distributors began
permitting some wholesalers to sell magazines and books to certain large
retailers without regard for exclusive geographic territories. (Id.
¶ 62.) Under the new system, wholesalers were permitted to bid for the
right to sell to a given large retailer in multiple territories. (Id.
¶¶ 63-64.) This change was apparently driven by the large retailers,
who preferred to purchase all of their publications from one wholesaler,
rather than having to make purchases from a different wholesaler in each
geographic area. (Id. ¶ 63.)
From 1938 through late 1995, Stoll had exclusive territories in
northern Ohio, southern Michigan, and eastern Indiana. (Id. ¶ 103.)
From 1971 through late 1995, Michiana had exclusive territories in
southwestern Michigan, Indiana, and northwestern Ohio. (Id. ¶ 104.)
From 1958 through late 1995, Klein had exclusive territories in northern
and northeastern Ohio. (Id. ¶ 105.) From 1959 through late 1995,
Central had exclusive territories in northern Ohio, West Virginia, and
Pennsylvania. (Id. ¶ 106.) Service News Company d/b/a Yankee News
Company, had exclusive territories in Connecticut and New York from 1958
until its merger into Unimag in 1998. (Id. ¶¶ 21, 107.) From 1988
through late 1995, Unimag had exclusive territories in Connecticut, New
York, North Carolina, South Carolina, and Pennsylvania. (Id. ¶ 108.)
Scherer did not itself operate as a wholesaler of books and magazines.
Instead, Scherer provided management services and computer hardware,
software, and technical support to the other plaintiffs. (Am. Compl.
¶ 20.) As of late 1995, Levy had exclusive territories in Illinois,
Indiana, Michigan, Pennsylvania, and Wisconsin. (Id. ¶ 112.)
Sometime between 1995 and 1999, defendant Levy began selling to one or
more large retailers in one or more of the plaintiffs' previously
exclusive territories. (Id. ¶ 76.) The Distributors enabled Levy to
do this by providing Levy with extra copies of magazines and books, as
well as with various discounts. These discounts were not provided to
plaintiffs. (Id. ¶¶ 63, 67, 74.) As a result, plaintiffs were left with
only smaller, less-profitable retailers, and so had difficulty
maintaining sufficient revenues to continue to operate. (Id. ¶¶ 73,
93.) In late 1998, Levy negotiated to acquire the assets of plaintiffs.
(Id. ¶ 115.) These negotiations culminated in an executed asset
purchase agreement dated March 18, 1999 (the "Purchase Agreement").
Plaintiffs and Levy never closed on the asset purchase transaction,
however. Plaintiffs allege that they were "forced" to cease doing
business in September 1999. (Id. ¶ 93.) Plaintiffs filed this action
on May 3, 2000. Murdoch moved to dismiss the complaint on July 20, 2000.
In response, plaintiffs filed the Amended Complaint on August 31, 2000.
All defendants then filed the instant motions to dismiss the Amended
Complaint. The Court heard oral argument on the motions on May 1, 2001.
III. MOTION TO DISMISS STANDARD
A court may not dismiss a complaint pursuant to Rule 12 unless, even
when the complaint is liberally construed, it appears beyond doubt that
the plaintiff can prove no set of facts which would entitle it to
relief. Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d
Cir. 1997). On a motion to dismiss, a court must accept as true all of
the facts alleged in the complaint. Id. A court must also must draw all
reasonable inferences in the light most favorable to the plaintiff. Id.
In antitrust cases, as in other types of cases, all that is required is a
"short plain statement of a claim for relief which gives notice to the
opposing party." Global Disc. Travel Servs. v. Trans World Airlines,
960 F. Supp. 701 (S.D.N.Y. 1997). "This does not mean that `conclusory
allegations which merely recite the litany of antitrust . . . will
suffice.'" Id. (quoting John's Insulation, Inc. v. Siska Constr, Co.,
774 F. Supp. 156, 163 (S.D.N.Y. 1991)).
IV. PLAINTIFFS' ANTITRUST CLAIMS
Plaintiffs' Amended Complaint includes fifteen counts, some of which
contain more than one cause of action. In this section, the Court
addresses the three counts that implicate antitrust law, both federal and
state. The remaining counts will be addressed in the following section.
A. Robinson-Patman Act (Count I)
Plaintiffs allege three separate causes of action under the
Robinson-Patman Act, 15 U.S.C. § 13 et seq. First, that the
Distributors violated section 2(a) of the Robinson-Patman Act,
15 U.S.C. § 13(a), by selling goods to Levy at a lower price than
they charged plaintiffs. Second, that all of the defendants violated
section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c). by the
Distributors paying, and Levy receiving, discounts disguised as brokerage
fees or discounts that constituted commercial bribes. Third, that Levy
violated section 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f),
by receiving discriminatorily lower prices for goods. The Court will
address each cause of action in turn.
1. Section 2(a)
Plaintiffs allege that the Distributors sold publications to Levy at a
lower price than the Distributors sold publications to plaintiffs,
thereby harming plaintiffs,
in violation of section 2(a). (Am. Compl.
¶¶ 66-84.) The Distributors argue that plaintiffs have failed to
adequately allege all of the elements of a section 2(a) claim. (Joint
Mem. of Law of the National Distributor Defs. in Supp. of Their Mot. to
Dismiss Pls.' Am. Compl. Pursuant to Fed.R.Civ.P. 12(b)(6)
("Distributors' Mem.") at 3-8.) The Court finds that plaintiffs have not
adequately alleged two elements of their section 2(a) claim. Section 2(a)
prohibits discriminatory pricing among competing buyers of the same
goods. 15 U.S.C. § 13(a). To state a claim for secondary-line price
discrimination under section 2(a),*fn2
a plaintiff must allege that: (i)
the seller made sales in interstate commerce; (ii) the seller
discriminated in price between two buyers; (iii) the product sold to both
purchasers was the same grade and quality; and (iv) the price
discrimination had an unlawful effect on competition. George Haug Co. v.
Rolls Royce Motor Cars, Inc., 148 F.3d 136
, 141 (2d Cir. 1998). In order
to establish an unlawful effect on competition, a plaintiff must allege
that it was actually competing with the favored purchaser at the time of
the price discrimination. Id.; Best Brands Beverage, Inc. v. Falstaff
Brewing Corp., 842 F.2d 578
, 584-85 (2d Cir. 1987). An allegation of
actual competition at the time of the price discrimination, and of a
price discrimination that was substantial and sustained over time, will
satisfy the fourth element of a section 2(a) claim. George Haug, 148 F.3d
The first two elements of the section 2(a) claim are adequately pled
here. The Distributors do not dispute that plaintiffs have alleged the
first element, the sale of goods or commodities in interstate commerce.
The Distributors argue that plaintiffs have not pled the second element,
price discrimination between favored and disfavored buyers, because the
plaintiffs have not alleged competition between plaintiffs and Levy at the
time when, and in the geographic markets where, any price discrimination
occurred. (Distributors' Mem. at 5-6.) This argument addresses not the
second element of a section 2(a) claim, but the fourth. All that is
required for the second element is an allegation of discrimination by the
seller between two buyers. George Haug, 148 F.3d at 136. Plaintiffs
allege that Levy purchased publications from the Distributors at a unit
price per publication lower than the unit price plaintiffs were forced to
pay the Distributors. (Am. Compl. ¶ 67.) This allegation is sufficient
to satisfy the second element.*fn3
The third element of plaintiffs' section 2(a) claim is a closer
question. The Distributors argue that plaintiffs have not
alleged the third element because they have not pled that Levy and the
plaintiffs purchased products of the same grade and quality.
(Distributors' Mem. at 6-7.) Plaintiffs allege that they paid a higher
price than did Levy "for the same Magazine or Book from the same seller."
(Am. Compl. ¶ 67.) As defendants point out, however, this allegation
is made problematic by plaintiffs' defined terms. "Magazines and Books"
is defined as "the lines of mass-market magazine titles, newspapers,
other periodicals and paperback book titles published by the Publishers
and distributed by the [Distributors] to Wholesalers or directly to Major
Retailers in the United States." (Am. Compl. ¶ 38.E.) of course, if
certain periodicals were sold directly to retailers, and not to
wholesalers, they may not form the basis of plaintiffs' Robinson-Patman
claims. Also, the "Publishers" are alleged to publish only magazines;
accordingly, "Magazines and Books" actually includes no books,
newspapers, or "other periodicals" other than magazines. (Am. Compl.
¶ 38.1.) Further, plaintiffs argue in their memorandum that, contrary
to what is alleged in the Amended Complaint, the products at issue are
"the 38 supertitle Magazines." (Pls.' Mem. in Opp. to the Nation
Distributor Defs.' Mot to Dismiss Pls.' Am. Compl. Pursuant to
Fed.R.Civ.P. 12(b)(6) ("Pls.' Distributor Mem.") at 8.) "Supertitle" is
an undefined term that apparently refers to the most popular magazines.
"Magazines and Books" by its definition, however, does not refer to
certain supertitles. For example, Shape is allegedly a "supertitle."
(Am. Compl. ¶ 38.G.4.) However, Shape is not within the category of
"Magazines and Books" because it is not published by one of the
"Publishers." (Am. Compl. ¶ 38.I.) Thus, Kable's sale of Shape is not
alleged to be a basis for the section 2(a) claim. Plaintiffs do not
clearly allege that Kable distributes magazines and books other than
Shape, or that Levy and any particular plaintiff was charged different
prices for whatever magazines Kable does distribute. Even under notice
pleading, plaintiffs' conclusory allegation, combined with their unclear
and inconsistent definitions of terms, does not afford Kable proper
notice of how it has allegedly violated the Robinson-Patman Act.
Similarly. plaintiffs' conclusory allegations and problematic definitions
fail to give adequate notice to the other Distributors. That is not to
say that plaintiffs must allege the exact price paid by each of them and
by Levy for each specific title, or otherwise plead all of their
evidence. However, absent clearer notice than they have provided in the
Amended Complaint, plaintiffs have failed to adequately allege the third
element of their section 2(a) claim.
Plaintiffs also do not adequately allege the fourth element of their
claim. As noted above, the Distributors argue that there is no sufficient
allegation of actual competition between plaintiffs and Levy at the time
when, and in the place where, any price discrimination occurred. The
Distributors also argue that, even if there was competition and price
discrimination, any such price discrimination was not sustained over a
long enough period of time to establish harm to competition.
(Distributors' Mem. at 5-6, 8.) Plaintiffs initially allege that.
"[s]tarting in 1995, some of the [Distributors] permitted some
Wholesalers to supply Magazines and Books to retail locations of Major
Retailers without regard to the exclusive geographic areas." (Am. Compl.
¶ 62.) This allegation is insufficient to meet the requirement that
there have been competition between any of the plaintiffs and Levy.
Plaintiffs later allege that during the period from May 1996 to May
2000, "plaintiffs have been in competition with Levy and other
Wholesalers... for sales of Magazines and Books to some
Major Retailer customers and prospective customers in the 11-state
territory serviced by plaintiffs. . . ." (Am. Compl. ¶ 76.) While an
improvement over the first allegation, this allegation is still
insufficient. First, it is not clear from this allegation if any
competition was with Levy or a non-party wholesaler. Second, as noted
above, plaintiffs may not treat six separate entities as if they were
one. Each of the five wholesaler plaintiffs had a distinct territory or
territories. See supra p. 5. It is unclear from the Amended Complaint as
to which plaintiffs faced competition from which of the wholesalers in
which territories for sales of the same commodities. Plaintiffs may not
state a claim by glossing over these factual requisites with a conclusory
allegation of competition. Moreover, there is no clear link between the
timing and location of any competition and the timing and location of the
alleged price discrimination. To state a claim, each plaintiff must
allege that there was price discrimination between it and Levy during the
time, and in the place, where that plaintiff and Levy competed for the
sale of the same goods. Because plaintiffs have not done this, they have
not adequately alleged a claim under section 2(a). Accordingly, the Court
dismisses this cause of action.
2. Section 2(c)
Plaintiffs allege that the defendants violated section 2(c) of the
Robinson-Patman Act by arranging for Levy to receive various payments and
discounts that amounted to sham brokerage fees and commercial bribes.
(Am. Compl. ¶¶ 66-84.) The defendants argue that plaintiffs have not
sufficiently alleged sham brokerage fees or commercial bribery.
(Distributors' Mem. at 4 n.3; Defendant Chas. Levy Circulating Co.'s
Mem. of Law in Supp. of its Mot. to Dismiss Pls.' Am. Compl. Pursuant to
Rule 12(b)(6) ("Levy's Mem.") at 7-9; Joint Reply Mem. of Law of the
National Distributor Defs. in Further Support of Their Mot. to Dismiss
Pls.' Am. Compl. Pursuant to Fed.R.Civ.P. 12(b)(6) at 3-4; Def. Chas.
Levy Circulating Co.'s Reply Mem. of Law in Supp. of its Mot. to Dismiss
Pls.' Am. Compl. Pursuant to Rule 12(b)(6) at 4-5.) The Court finds that
plaintiffs have not adequately alleged all of the elements of a claim
under section 2(c). Section 2(c) prohibits sham brokerage fees, that is,
price concessions disguised as payments to alleged brokers who do no
brokerage work but simply turn the payments over to buyers.
15 U.S.C. § 13(c); Federal Trade Comm'n v. Henry Broch & Co.,
363 U.S. 166, 169 (1960). Some courts have also construed section 2(c) to
prohibit commercial bribery, although this is not a settled question in
the Second Circuit. Compare, e.g., Philip Morris, Inc. v. Grinnell
Lithographic Co., 67 F. Supp.2d 126 (E.D.N.Y. 1999) (prohibits bribery)
with Intimate Bookshop, Inc. v. Barnes and Noble, Inc., 88 F. Supp.2d 133
(S.D.N Y 2000) (applies only to brokerage fees).
Plaintiffs' claim of a violation of section 2(c) apparently rests
entirely upon the allegations in one paragraph of the Amended Complaint,
Upon information and belief, the [Distributors]
offered and/or Levy and Hudson News solicited, induced
and knowingly received on its [sic] Magazine and Book
purchases from the [Distributors] and from the
Publishers the following secret Discounts, Rebates and
Deductions knowing that they were not being offered or
made available to plaintiffs and that such Discounts,
Rebates and Deductions were in violation of the
(r) upon information and belief. Murdoch and the other
[Distributors] arranged for additional discounts and
payments to or for the benefit of Levy:
(1) from Publishers of supertitles being distributed
by the respective [Distributors] and other
Publishers, given directly to Levy
(2) from said Publishers and the [Distributors],
given indirectly to Levy through payments to Levy
Trucking Company, Levy Book Company or other Levy
(3) from brokers or other third persons as brokerage
fees or similar payments;
in violation of paragraph 2(c) of the Robinson-Patman Act.
(Am. Compl. ¶ 74(r).) Subparagraph (3) is conclusory, devoid of
facts, and fails to state a claim under section 2(c) of the
Robinson-Patman Act. Subparagraphs (1) and (2) are insufficient to allege
sham brokerage fees. "The fact that a direct payment or indirect discount
passes from one party to another party does not compel the conclusion that
the payment or discount violates Section 2(c)." Intimate Bookshop, 88 F.
Supp. 2d at 140. Yet subparagraphs (1) and (2) allege nothing more. "In
order to make out a prima facie Section 2(c) claim, a plaintiff must
specifically plead that the payment or discount is in lieu of a brokerage
[fee], which the Federal Trade Commission and courts have defined as a
reduced or eliminated brokerage." Id. Plaintiffs do not make this
required pleading. The only mention of brokerage is the conclusory
statement in subparagraph (3). It is not possible to conclude from the
Amended Complaint that the payments described were not genuine brokerage
fees "for services rendered in connection with the sale or purchase of
goods," as the Robinson-Patman Act permits. 15 U.S.C. § 13(c).
As for commercial bribery, assuming arguendo that it is prohibited
under section 2(c), plaintiffs have failed to state a claim. To the
extent that section 2(c) prohibits bribery, it prohibits "cases of
commercial bribery involving a breach of a fiduciary duty by the buyer's
agent." Grinnell, 67 F. Supp. 2d at 131. For example, the plaintiff in
Grinnell alleged that the defendants bribed plaintiff's purchasing
manager to buy lithographic services from defendants rather than from
defendants' less expensive competitors. Id. at 128. Plaintiffs here
allege nothing of the sort; they allege only payments to Levy or its
affiliates. The allegation that a discount or payment passed from one
business to another does not implicate bribery involving a breach of
fiduciary duty. Thus, even if it is possible to state a claim for
commercial bribery under section 2(c), plaintiffs have not done so.
Accordingly, plaintiffs' causes of action under section 2(c) are
3. Section 2(f)
Plaintiffs allege that Levy violated section 2(f) by knowingly
receiving discriminatory prices in violation of other sections of the
Robinson-Patman Act. Section 2(f) provides that, "[i]t shall be unlawful
for any person engaged in commerce, in the course of such commerce,
knowingly to induce or receive a discrimination in price which is
prohibited by this section." 15 U.S.C. § 13(f). Because the Court has
already dismissed plaintiffs' other causes of action under the
Robinson-Patman Act, there remains no allegation of any prohibited price
discrimination that Levy could have received. Accordingly, this cause of
action is dismissed.
B. Tying (Count XII)
Plaintiffs allege that the Distributors have each engaged in unlawful
referred to as "full-line forcing") in violation of the
Sherman Act, 15 U.S.C. § 1, 2, New York's Donnelly Act, N.Y. Gen.
Bus. Law § 340, and Ohio's Valentine Act, Ohio Rev. Code Ann. §
1331.01 et seq.*fn4
Specifically, plaintiffs allege that the
Distributors required that wholesalers who wished to purchase a quantity
of supertitles also purchase other titles sold by the Distributors and
unwanted quantities of all titles. (Am. Compl. ¶¶ 267-268, 270.)
Plaintiffs assert that, if given a choice, they would not have purchased
the titles other than the supertitles nor the extra copies of any of the
titles. (Am. Compl. ¶ 266; Pls.' Distributor Mem. at 26-27.)
As an initial matter, this Court has previously observed that, "[a]s a
prerequisite to any antitrust claim, plaintiff must allege a relevant
product market in which the anticompetitive effects of the challenged
activity can be assessed." Carell v. Shubert Org., Inc.,
104 F. Supp.2d 236, 264 (S.D.N.Y. 2000) (internal quotations omitted). A
relevant product market must include all reasonably interchangeable
products. This requires consideration of cross-elasticity of demand. Id.
"A plaintiff's failure to define its market by reference to the rule of
reasonable interchangeability is, standing alone, valid grounds for
dismissal." Id. (quoting Global, 960 F. Supp. at 705) (internal
Here, plaintiffs allege that "[t]he relevant product market is each of
the supertitles distributed by the [Distributors], and the relevant
product/service market of distribution of the supertitles. . . ." (Am.
Compl. ¶ 262.) This is an inadequate market allegation. The Amended
Complaint fails to make reference to the rule of reasonable
interchangeability; it does not expressly define the term "supertitles,"
let alone assert a rational explanation of why the relevant markets
should be restricted to individual supertitles, or even supertitles as a
whole. Indeed, with the exception of TV Guide (Am. Compl. ¶ 269),
plaintiffs do not even attempt to allege the absence of cross-elasticity
of demand. "Courts in this [D]istrict have rejected the proposition that
allegedly unique products, by virtue of customer preference for that
product, are markets unto themselves." Carell, 104 F. Supp. 2d at 265
(market was products related to Broadway shows, not just products related
to Cats) (internal quotations omitted); Global, 960 F. Supp. at 704-05
(market was tickets on all airlines, not just tickets on TWA); Theatre
Party Assocs., Inc. v. Shubert Org., Inc., 695 F. Supp. 150, 154
(S.D.N.Y. 1988) (market was Broadway shows, not just Phantom of the
Opera); Frito-Lay, Inc. v. Bachman Co., 659 F. Supp. 1129, 1137 (S.D.N.Y.
1986) (market was all salty snacks, not just corn chips); Shaw v. Rolex
Watch, USA, Inc., 673 F. Supp. 674, 679 (S.D.N.Y. 1987) (market was high
quality watches, not just Rolex watches).
It is true that the Supreme Court recognized markets for a single brand
in Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451
(1992). That case is distinguishable, however, because it involved
circumstances not present here. There, the relevant markets were for
parts and services for Kodak photocopiers and micrographic equipment.
These photocopiers and other machines were expensive to purchase,
little resale value. Once a customer purchased these machines, it was
locked into Kodak parts and service because the hardware and software for
those machines was incompatible with equivalent machines made by Kodak's
competitors, and vice-versa. 504 U.S. at 456-57. In these circumstances,
the Supreme Court recognized that parts for Kodak machines were a market
unto themselves because there were no reasonably available substitutes,
and owners of Kodak machines could not practically replace the machines
once they had purchased them. 504 U.S. at 481-82. Here, the market is for
magazines, reasonably inexpensive publications that inherently become
outdated within weeks or months. Buying one issue of a particular
magazine from a retailer does not in any way lock the customer into that
title. See Global, 960 F. Supp. at 705 (consumers not "locked into"
airline, soft drink, or television network). Additionally, plaintiffs
allege no lack of readily available substitutes for the supertitles. For
example, a customer dissatisfied with Time could easily switch the next
week to Newsweek, U.S. News & World Report, or a number of other news
magazines. Neither supertitles nor wholesale sales of supertitles
constitute a separate market. Accordingly, plaintiffs have failed to
properly allege a relevant product market and their tying claim must be
dismissed for that reason.
Even if the plaintiffs had properly alleged a relevant product market,
however, the Court would be compelled to dismiss this cause of action for
failure to state a claim for tying. "A tying arrangement is an agreement
by a party to sell one product but only on the condition that the buyer
also purchases a different (or tied) product." Yentsch v. Texaco, Inc.,
630 F.2d 46, 56 (2d Cir. 1980) (internal quotations omitted). The Second
Circuit recently reiterated the elements of a claim for tying that is per
se unlawful under the federal antitrust statutes, stating:
[a]s to the detailed requirements to state a tying
We have required allegations and proof of five
specific elements before finding a tie illegal:
first, a tying and a tied product; second, evidence of
actual coercion by the seller that forced the buyer to
accept the tied product; third, sufficient economic
power in the tying product market to coerce purchaser
acceptance of the tied product; fourth,
anticompetitive effects in the tied market; and
fifth, the involvement of a "not insubstantial" amount
of interstate commerce in the "tied" market.
Hack v. President and Fellows of Yale Coll., 237 F.3d 81 (2d
Plaintiffs contend that each magazine title, in any quantity, is
available from only one distributor. (Am. Compl. ¶¶ 38.G, 46; Pls.'
Distributor Mem. at 25-26.) Accordingly, no competing distributor of the
tied products is being prevented from selling the tied products to
wholesalers; there are no competing distributors of the tied products.
Therefore, there can be no anticompetitive effects in the tied markets.
See Coniglio v. Highwood Servs., Inc., 495 F.2d 1286, 1291-92 (2d Cir.
1974) (plaintiff's allegation that Buffalo Bills football team unlawfully
tied regular season tickets and pre-season tickets failed because all
Bills tickets only available from the Bills);
Cancall PCS LLC v.
Omnipoint Corp., No. 99 Civ. 3395 (AGS), 2001 WL 293981, at *4 (S.D.N.Y.
Mar. 26, 2001) (hereinafter "Cancall II") (plaintiffs' allegation that
defendant Omnipoint unlawfully tied air time on its wireless telephone
network and handsets compatible with that network failed because handsets
and air time on Omnipoint's network only available from Omnipoint). A
required element of the per se tying claim is therefore necessarily
Plaintiffs cannot cure this defect with their contention that, if given
a choice, they would not have purchased the non-supertitles nor the extra
quantities of any titles. The Supreme Court has ruled that "when a
purchaser is `forced' to buy a product he would not have otherwise bought
even from another seller in the tied-product market, there can be no
adverse impact on competition because no portion of the market which
would otherwise have been available to other sellers has been
foreclosed." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16
(1984). Since plaintiffs claim that the non-supertitles and the surplus
copies of all titles were unwanted, and would not have been purchased at
all, no competition in the market for those tied products was
foreclosed. See id.; Gonzalez v. St. Margaret's House Dev. Fund.,
880 F.2d 1514, 1518 (2d Cir. 1989) (doubtful that competition was
foreclosed in tied market where, absent compelled link between housing
and prepared meals, residents of housing development would probably not
have purchased prepared meals at all); Yentsch, 630 F.2d at 57-58
(unlikely that there were anticompetitive effects in the tied market
where testimony suggested that, absent compulsion, plaintiff would not
have purchased tied products at all). Accordingly, plaintiffs fail to
state a per se tying claim.
Plaintiffs also fail to state a tying claim under the Rule of Reason.
"The Rule of Reason requires, among other things, an adverse effect on
competition in the relevant market." Cancall II, 2001 WL 293981, at *5
(citing Vermont Mobile Home Owners' Ass'n, Inc. v. LaPierre, No.
2:97-CV-209, 2001 WL 137583, at *3 (D. Vt. Feb. 1, 2001) and Audell, 903
F. Supp. at 371-72.) As set forth above, there are no anticompetitive
effects on competition in the markets for any magazine titles or for any
quantities of any magazine title, or in the market for distribution of
such titles. The requirements of the Rule of Reason are therefore not
satisfied. In sum, the Amended Complaint fails to state a claim for
unlawful tying because its allegations demonstrate an absence of
anticompetitive effects in the markets for the tied products.
Accordingly, the Court dismisses plaintiffs' cause of action for alleged
C. Predatory Pricing (Count XIII)
Plaintiffs allege that the Distributors and Levy violated sections 1
and 2 of the Sherman Act, and the Valentine Act, by engaging in a
conspiracy in which Levy charged certain retailers predatory (i.e. below
cost) prices in order to drive plaintiffs out of business. (Am. Compl.
¶¶ 282-306.) The defendants argue, on multiple grounds, that
plaintiffs have failed to state a claim. (Distributors' Mem. at 18-20.)
The Court finds that this cause of action must be dismissed because
plaintiffs' have failed to state a claim under section 1 or section 2 of
the Sherman Act. The first problem is, again, market definition. Although
Count XIII refers primarily to sales of magazines to, and by, "Major
Retailers" (Am. Compl. ¶¶ 283, 285, 287, 291-94, 300-01), plaintiffs
argue in their memoranda that four markets are at issue. (Pl.'s Mem. in
Opp. to Def. Chas. Levy Circulating Co.'s Mot. to Dismiss Pls.' Am.
Compl. Pursuant to Rule 12(b)(6) ("Pls.' Levy Mem.") at 21; Pls.'
Distributor Mem. at 29.) Two of these markets, "each of the Magazine
supertitles distributed by the respective [Distributors]" (Am. Compl.
¶ 38.J(ii)) and "distribution of the Magazine supertitles" (Am.
Compl. ¶ 38.J(iii)) are deficient for the reasons set forth in
Section IV.B, supra. A third alleged market, "Magazine distribution
through the checkout counters of Major Retailers" (Am. Compl. ¶
38.J(iv)) is also deficient. While a particular method of distributing a
product may constitute a distinct market, a plaintiff seeking to establish
such a market must allege that "enough customers do not view other
methods of distribution as viable substitutes to the distribution method
in question." Pepsico, Inc. v. Coca-Cola Co., No. 98 Civ. 3282 (LAP),
1998 WL 547088, at *8 (S.D.N.Y. Aug. 27, 1998). To establish a market
consisting solely of retail sales of Magazines through checkout counters
of large retailers, plaintiffs would have to allege that a sufficient
number of retail customers view other retail sales, such as retail sales
at small retailers or newsstands, as inadequate substitutes. Plaintiffs
make no such allegations. The only product or service markets that appear
to be adequately alleged, then, are the distribution market and the
wholesale market for publications. (Am. Compl. ¶ 38.J(i).) As to the
geographic component of the markets, plaintiffs allege that the relevant
area consists of those territories in which plaintiffs, Levy, and
non-party wholesaler Hudson News, conducted wholesale sales. (Am. Compl.
¶ 38.J.) Hudson News' territory appears irrelevant because Hudson
News' conduct is not at issue here. As to the territories in which
plaintiffs did business, as noted previously, plaintiffs must distinguish
among themselves as to their different territories. Assuming that
plaintiffs have alleged markets consisting of magazine and book sales by
distributors to wholesalers, or by wholesalers to retailers, in the
geographic areas where each plaintiff and Levy did business, plaintiffs
have failed to allege all of the elements required to assert a claim
under section 1 or section 2 of the Sherman Act.
1. Section 1
Section 1 prohibits, among other things, conspiracies in restraint of
trade. 15 U.S.C. § 1. A conspiracy to engage in predatory pricing
would be barred under section 1. As this Court has previously ruled,
however, where the facts alleged in a complaint demonstrate that an
alleged predatory pricing conspiracy makes no economic sense, the cause
of action must be dismissed. Cancall I, 2000 WL 272309, at *7 n.4 (citing
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)).
Cancall I is similar to the instant action in this respect. In Cancall
I, defendants Ericsson, Siemens, and Nortel manufactured handsets for use
on defendant Omnipoint's wireless telephone network. Those handsets were
sold exclusively to Omnipoint, which resold them to consumers and to
other businesses, such as plaintiff Cancall, that also resold the
handsets to consumers. Id. at *1. Since defendants were the exclusive
source of handsets, and Cancall could only obtain handsets through the
defendants, "predatory pricing to eliminate [Cancall] from that market
[was] entirely unnecessary in order to charge supracompetitive prices."
Id. at *7 n.4. Accordingly, the Court dismissed the predatory pricing
claim. Id. The same is true here with respect to the Distributors.
Plaintiffs are not competing distributors. Rather, as plaintiffs allege,
the Distributors are plaintiffs' exclusive source of supertitles and
other magazines and books. It is entirely unnecessary for the
to engage in predatory pricing in order to charge Plaintiffs
supracompetitive prices or put plaintiffs out of business.
In opposition to this line of reasoning, plaintiffs offer two
arguments. First, they contend that driving plaintiffs out of business
through predatory pricing saves the Distributors the costs of either
properly terminating plaintiffs or arranging a buyout of plaintiffs by
another wholesaler. First, as set forth in Section V.A. infra, there are
no enforceable contracts between plaintiffs and the Distributors;
accordingly, the Distributors could terminate plaintiffs at will, with no
costs. Second, even if the Distributors were required to give plaintiffs
notice of termination, doing so would impose no costs on the
Distributors. The only costs alleged are the costs of performing the
contracts for an additional time. However, plaintiffs specifically allege
that they bear all of the costs of distribution. (Am. Compl. ¶¶
46-55.) Thus, an additional period of performance would impose no costs
on the Distributors. Third, plaintiffs do not allege any contractual
requirement that the Distributors arrange a buyout of a terminated
wholesaler. They allege only an industry custom. (Am. Compl. ¶¶
61-61A.) The Distributors could simply ignore such a custom. Thus,
predatory pricing remains completely unnecessary.
Plaintiffs second argument is that the Distributors conspired to engage
in predatory pricing to effectuate a scheme whereby Murdoch would become
the sole wholesaler in the nation. This argument suffers from the same
defect as the preceding one. Even if the Distributors wished to engage in
the alleged scheme to make Murdoch the nation's only wholesaler,
predatory pricing would be completely unnecessary. As set forth in the
preceding paragraph, the Distributors could simply terminate plaintiffs
and all of the other wholesalers, and then establish Murdoch as the sole
wholesaler. Since, under any theory, plaintiffs alleged conspiracy to
engage in predatory pricing is entirely unnecessary and makes no economic
sense, plaintiffs fail to state a claim under section 1. Accordingly, the
Court dismisses this cause of action.
2. Section 2
Plaintiffs' section 2 cause of action fares no better. Section 2
prohibits monopolization or attempted monopolization. 15 U.S.C. § 2. A
section 2 plaintiff must allege that the defendant has, or has a
dangerous probability of obtaining, a monopoly in the relevant market.
See Irvin Indus., Inc. v. Goodyear Aerospace Corp., 974 F.2d 241, 244 (2d
Cir. 1992) (monopolization claim requires, among other things, "monopoly
power in the relevant market"); Kelco Disposal, Inc. v. Browning-Ferris
Indus., 845 F.2d 404, 407 (2d Cir. 1988) (attempted monopolization claim
requires, among other things, dangerous probability of obtaining monopoly
power). As for actual monopoly power, plaintiffs admit that Levy does not
currently have monopoly power. (Tr. at 32.) As for the possibility of
acquiring monopoly power, plaintiffs alleged that, beginning in 1995, the
exclusive territorial system was replaced with a system whereby
wholesalers bid for the right to supply magazines and books to large
retailers. (Am. Compl. ¶¶ 62-64.) Plaintiffs also alleged that Levy
obtained contracts with one or more large retailers for certain periods
of time. (Am. Compl. ¶ 291.) This does not establish that Levy will
obtain a monopoly, only that it was the winning bidder for certain
customers for certain times. In fact, the allegations regarding the
establishment of a bidding system suggest that Levy is unlikely to have a
monopoly, as it will have to compete against other wholesalers. The Court
also notes that plaintiffs never allege
Levy's market share in any
relevant geographic market. There is no basis for finding a dangerous
probability of monopolization by Levy.
Plaintiffs argue in the alternative that the Distributors together have
a monopoly in the distribution of magazines. Sales by distributors to
wholesalers, however, constitute a separate market from sales by
wholesalers to retailers. Thus, the Distributors' monopoly power
upstream, in the distribution market, has no legal significance with
respect to the wholesale market. See H.L. Hayden Co. v. Siemens Med.
Sys., Inc., 879 F.2d 1005 (2d Cir. 1989) (industry concentration at
supplier level of distribution chain irrelevant to claim of attempted
monopolization at dealer level). Moreover, the Court has already
dismissed plaintiffs' conspiracy claim. Even if the Court had not
dismissed the conspiracy claim, the alleged result of the conspiracy
would be the destruction of Levy. (Am. Compl. ¶¶ 300-03.) If Levy were
soon to be destroyed by the Distributors, there would be no risk that
Levy will obtain a monopoly in the wholesale market. Plaintiffs' own
allegations demonstrate the absence of a required element of their
section 2 cause of action. Accordingly, this cause of action is
V. PLAINTIFFS' NON-ANTITRUST CLAIMS
In addition to the antitrust claims described above, plaintiffs assert
a variety of claims under state law, both statutory and common law. In
this section, the Court addresses these non-antitrust claims.
A. Breach of Contract by the Distributors (Count II)
Plaintiffs allege that by allowing Levy and other wholesalers to sell
magazines and books to retailers in plaintiffs' various territories, the
Distributors breached their contracts with plaintiffs. (Am. Compl. ¶¶
96-121.) The Distributors argue that this claim must be dismissed because
the Statute of Frauds bars enforcement of the alleged contracts between
the Distributors and plaintiffs. (Distributors' Mem. at 9-11.) The Court
finds that the Statute of Frauds bars enforcement of the alleged
Both sides address this count under New York law, without reference to
any applicable choice of law issues. Accordingly, the Court assumes that
New York law applies to any contracts between the Distributors and
plaintiffs. Under New York law, the Statute of Frauds generally requires
that a contract be evidenced by a writing signed by the party against
whom enforcement is sought. N.Y. Gen. Oblig. Law § 5-701(a); N Y
U.C.C. § 2-201(1). The Amended Complaint does not allege a writing
evidencing the contracts that have allegedly been signed by any of the
Distributors. Accordingly, unless the contracts fall within one of the
exceptions to the Statute of Frauds, this cause of action must be
Plaintiffs first argue that their contracts are exempt from the General
Obligation Law's Statute of Frauds because the contracts were capable of
completion within one year. (Pls.' Distributor Mem. at 10.) It is clear,
however, that a contract of indefinite term is capable of performance
within a year only if there is an express provision for termination prior
to the end of a year. "The New York cases uniformly hold that implied
termination terms are not sufficient to take an oral contract out of the
statute." Burke v. Bevona, 866 F.2d 532, 538 (2d Cir. 1989); see also D &
N Boening, Inc. v. Kirsch Beverages, Inc., 472 N.E.2d 992, 995 (N.Y.
1984) ("As this court early explained, `termination
is not performance,
but rather the destruction of the contract where there is no provision
authorizing either of the parties to terminate as a matter of right.'")
Plaintiffs do not allege that their contracts with the Distributors
contained express termination provisions, but only implied termination
provisions. (Am. Compl. ¶ 100.) Since no express term was ever
alleged, the contracts are for an indefinite duration and so not capable
of performance within one year. See D & N Boening, 472 N.E.2d at 995. The
alleged contracts are thus barred by § 5-701.
Additionally, even if the contracts had express termination
provisions, they were not capable of being performed within one year.
Plaintiffs allege that the distribution cycles for magazines lasted 4-6
months for weekly magazines and 6 months for monthly magazines. (Am.
Compl. ¶ 100.I, 100.J.) A contract could not be terminated with
respect to a distribution cycle that had already begun. (Id. ¶
100.K.) Plaintiffs further assert that both sides had to perform certain
activities for 6 to 8 months after termination. (Pls.' Distributor Mem.
at 10; Pls.' Levy Mem. at 7.) Thus, to terminate a contract for
distribution of a monthly magazine, a Distributor would have to give
notice of termination more than six months in advance (so as not to
terminate a distribution cycle in progress) and then perform for at least
six months after the cycle terminated. The contracts could not, then, be
performed within one year. Accordingly, § 5-701 bars enforcement of
U.C.C. § 2-201, the U.C.C. Statute of Frauds, also bars enforcement
of the contracts if it applies. Plaintiffs contend that § 2-201 does
not apply to distribution contracts (Pls. Distributor Mem. at 10-11.) New
York courts are split on this issue. Compare Huntington Dental & Medical
Co. v. Minnesota Mining and Mfg. Co., No. 95 Civ. 10959 (JFK), 1998 WL
60954. at *4 (S.D.N.Y. Feb. 13, 1998) (2-201 applies) and Wallach Marine
Corp. v. Donzi Marine Corp., 675 F. Supp. 838, 840 (S.D.N.Y. 1987) (same)
and United Beer Distrib. Co. v. Hiram Walker (N.Y.) Inc., 557 N.Y.S.2d 336,
337-38 (App. Div. 199 0) (same) with Paper Corp. v. Schoeller Tech.
Press, 773 F. Supp. 632, 636-37 (S.D.N Y 1991) (2-201 does not apply) and
Zimmer-Masiello, Inc. v. Zimmer, Inc., 552 N.Y.S.2d 935 (App. Div. 1990)
(applying Gen. Oblig. Law. § 5-701 without consideration of §
Plaintiffs argue that, if § 2-201 applies, their contracts with the
Distributors fall under the "merchant's exception" to § 2-201. (Pls.'
Distributor Mem. at 11-14.) The merchant's exception provides that,
"[b]etween merchants if within a reasonable time a writing in
confirmation of the contract and sufficient against the sender is
received and the party receiving it has reason to know its contents, it
satisfies the requirements of subsection (1) against such party unless
written notice of objection to its contents is given within ten days
after it is received." N.Y. U.C.C. § 2-201(2). Plaintiffs assert that
a confirmatory writing under § 2-201(2) is "sufficient for the entire
oral agreement to be taken out of the 2-201 Statute of Frauds." (Pls.'
Distributor Mem. at 12 (citing Bazak Int'l Corp. v. Mast Indus.,
535 N.E.2d 633, 633-34 (N.Y. 1989) (emphasis added).) Plaintiffs contend
that because they sent the Distributors certain affidavits attesting to
proper disposal of returned publications, the merchant's exception is
satisfied as to the distributorship contracts in their entirety. (Pls.'
Distributor Mem. at 12-14.) Bazak does not, however, establish that an
entire oral agreement for an exclusive territorial distributorship is
outside the Statute of
Frauds if there is a writing confirming sale of
particular goods. Bazak concerned a contract for the one-time sale of
certain textiles. 535 N.E.2d at 634. The Bazak Court never considered
whether confirmatory writings as to a particular shipment of goods
established a distributorship agreement of indefinite duration for an
exclusive territory. A court that did consider that issue ruled that such
writings do not establish a distributorship agreement, but only the sale
of the goods in question. United Beer, 557 N.Y.S.2d at 337-338. The Court
agrees, and finds that the alleged affidavits referring to particular
shipments of magazines are insufficient to satisfy the merchant's
Plaintiffs also argue that their performance of the contracts takes the
contracts out of the Statute of Frauds. (Pls.' Distributor Mem. at 15.)
Plaintiffs apparently rely here upon N.Y. U.C.C. § 2-201(3)(c). The
plain language of this provision makes clear, however, that it only
removes a contract from the Statute of Frauds to the extent that goods
have been either paid for or received and accepted. N.Y. U.C.C. §
2-201(3)(c); N Y U.C.C. § 2-201, cmt. 2. As such, § 2-201(3)(c)
cannot be used to establish a distributorship agreement. Section 2-201
thus bars enforcement of the contracts if it applies. For the reasons set
forth above, the Statute of Frauds bars enforcement of plaintiffs'
alleged contracts with the Distributors. Accordingly, plaintiffs' cause
of action against the Distributors for breach of contract is dismissed.
B. Breach of the Covenant of Good Faith and Fair Dealing by the
Distributors (Count II)
Plaintiffs allege that the Distributors breached the distribution
contracts' implied covenants of good faith and fair dealing. (Am. Compl.
¶¶ 122-135.) A cause of action for breach of this implied covenant,
however, is dependent upon the existence of an enforceable contract.
Kreiss v. McCown DeLeeuw & Co., 37 F. Supp.2d 294, 301 (S.D.N Y 1999)
("no implied duty of good faith and fair dealing may attach to an
unenforceable contract"); American-European Art Assocs., Inc. v. Trend
Galleries, Inc., 641 N.Y.S.2d 835, 836 (App. Div. 1996) (cause of action
for breach of implied covenant of good faith and fair dealing "properly
dismissed for lack of a valid and binding contract from which such a duty
would arise"). For the reasons set forth in Section V.A. supra,
plaintiffs have failed to allege a valid contract. Accordingly, this cause
of action is dismissed.
C. Promissory Estoppel Against the Distributors (Count III)
Plaintiffs allege, in the alternative to their breach of contract claim
against the Distributors, that the Distributors were promissorily
estopped from taking away plaintiffs' exclusive territories. (Am. Compl.
¶¶ 136-149.) The Distributors argue that this claim must be dismissed
because plaintiffs have not alleged unconscionable injury. (Distributors'
Mem. at 12-13.) The Court finds that this cause of action is barred by
the Statute of Frauds and a lack of unconscionable injury. The parties
only address this cause of action under New York law; accordingly, the
Court assumes that New York law applies. A claim for promissory estoppel
may not be maintained under New York law where the alternative claim for
breach of contract is barred by the Statute of Frauds, unless the
circumstances make it unconscionable to deny the promise upon which the
plaintiff relied. Merex A.G. v. Fairchild Weston Sys., Inc., 29 F.3d 821,
826 (2d Cir. 1994); Philo Smith & Co. v. USLife Corp., 554 F.2d 34, 36
(2d Cir. 1977);
D&N Boening, Inc. v. Kirsch Beverages. Inc.,
471 N.Y.S.2d 299, 302 (App. Div.), aff'd 472 N.E.2d 992 (N.Y. 1984);
Swerdloff v. Mobil Oil Corp., 427 N.Y.S.2d 266, 269-70 (App. Div. 1980).
Unconscionable injury for these purposes is "injury beyond that which
flows naturally . . . from the non-performance of the unenforceable
agreement." Merex, 29 F.3d at 826.
Plaintiffs argue that they suffered unconscionable injury because the
Distributors' failure to give them proper notice left plaintiffs with
incurred costs, for matters such as vehicles, employment contracts, and
real estate contracts, expenses that they could not reduce to match their
reduced income (as they would have if given proper notice). (Pls.'
Distributor Mem. at 16-17.) The facts alleged here are substantially
similar to those in Boening. In that case, the plaintiff had, in 1955,
entered into an oral agreement to become the prime distributor of a
defendant's beverage for as long the plaintiff satisfactorily performed.
In 1982, new management at the defendant terminated the plaintiff's
distributorship. 471 N.Y.S.2d at 300. After dismissing plaintiff's breach
of contract claim under the Statute of Frauds, the court addressed the
promissory estoppel claim. The court found no unconscionable injury even
though plaintiff alleged that, in reliance upon defendant's promise, it
had invested considerable amounts of money in plant and capital
equipment, increased its payroll, structured its growth around
defendant's beverage, and forgone other business opportunities. Id. at
302. The court stated:
[i]n sum, this is not a case where a promisee was
induced to act upon an unfulfilled promise. It is
clear that both sides to the agreement herein
continued to perform and derive benefits for almost
three decades before the agreement was terminated. In
our view, such circumstances are not so egregious as
to render unconscionable the assertion of the Statute
Id.; see also North Am. Knitting Mills, Inc. v. lnternational Women's
Apparel, Inc., No. 99 Civ. 4643 (LAP), 2000 WL 1290608, at *3 (S.D.N.Y.
Sept. 12, 2000); Paper Corp. v. Schoeller Tech. Papers. Inc.,
724 F. Supp. 110, 118-19 (S.D.N.Y. 1989). So too here. Plaintiffs and the
Distributors operated for decades under oral agreements for plaintiffs to
act as exclusive wholesalers for particular publications in particular
areas. Both plaintiffs and the Distributors profited under this
arrangement for many years. The fact that the Distributors eventually
stopped performing under the oral agreements, to plaintiffs' financial
detriment, is not unconscionable. Indeed, the loss of money invested in
the business over the years is precisely the injury that flows naturally
from the nonperformance of an oral agreement to grant an exclusive
wholesale territory until notice of termination is given. Because
plaintiffs have failed to show unconscionable injury, their cause of
action for promissory estoppel is dismissed.
D. Violation of the New York Franchise Sales Act by the Distributors
Plaintiffs allege that the Distributors are franchisors and that
plaintiffs are franchisees, but that the Distributors did not comply with
the requirements of the New York Franchise Sales Act, N.Y. Gen. Bus. Law
§ 680 et seq. (Am. Compl. ¶¶ 150-177.) The Distributors argue that
their relationships with plaintiffs did not fall within the scope of the
Franchise Sales Act (Distributors' Mem. at 13-16), and that, in any
event, any claim by the plaintiffs under the Franchise Sales
time-barred. (Id. at 17-18.) The Court finds that, even assuming the
Franchise Sales Act applies to the relationship between the Distributors
and plaintiffs, any claim thereunder is barred by the statute of
The Franchise Sales Act has a three year statute of limitations. N.Y.
Gen. Bus. Law § 691(4). Courts applying this provision have ruled
that the limitations period begins to run when the the franchise contract
is entered into, and that continuous violations do not toll the statute
of limitations. 6100 Cleveland, Inc. v. Staff Builders Int'l, Inc.,
127 F. Supp.2d 877, 884-85 (N.D. Ohio 1999); Zaro Licensing, Inc. v.
Cinmar, Inc., 779 F. Supp. 276, 287 (S.D.N.Y. 1991); Leung v. Lotus
Ride, Inc., 604 N.Y.S.2d 65, 67 (App. Div. 1993); Fantastic Enter.,
Inc. v. S.M.R. Enter., Inc., 540 N.Y.S.2d 131, 134 (Sup.Ct. 1988). But
cf. Keeney v. Kemper Nat'l Ins. Cos., 960 F. Supp. 617, 625 (E.D.N.Y.
1997) (declining to follow Zaro or otherwise decide when statute of
limitations began to run; cause of action dismissed on other grounds).
Plaintiffs' agreement with each Distributor was entered into in 1981.
(Am. Compl. ¶ 152). Plaintiffs' original complaint was not filed
until 2000. Accordingly, this claim is untimely. Plaintiffs argue that
changes to their alleged franchise agreements created entirely new
agreements or restarted the limitations period in some other fashion.
(Pls.' Distributor Mem. at 20-21.) Plaintiffs do not, however, cite any
authority in support of this argument. The Court concludes, consistent
with the majority of the cases cited above, that the statute of
limitations begins to run at the time that the parties first enter into
the franchise agreement. Accordingly, the Court dismisses plaintiffs'
cause of action for breach of the New York Franchise Sales Act as
E. Inducing Breach of Contract or Interference with Advantageous
Business Relationship By Levy (Count V)
Plaintiffs allege that Levy tortiously interfered with their contracts
or business relationships with the Distributors by causing the
Distributors to violate plaintiffs' exclusive territories and permit Levy
to sell to retailers in plaintiffs' territories. (Am. Compl. ¶¶
178-184.) Levy argues that its activities constituted permissible
competition. (Levy's Mem. at 9-12.) The Court finds that Levy's alleged
actions were not tortious under New York or Ohio law. The parties address
this issue under New York and Ohio law. Because the result is the same
under either, the Court will discuss both. First, plaintiffs' cause of
action for inducing breach of contract must be dismissed because the
Court has already found that the Statute of Frauds precludes enforcement
of the contracts between plaintiffs and the Distributors. See Herman &
Beinin v. Greenhaus, 685 N.Y.S.2d 41
, 41 (App. Div. 1999) (New York
law); Allied Sheet Metal Works, Inc. v. Kerby Saunders, Inc.,
619 N.Y.S.2d 260
, 265 (App. Div. 1994) (same); Bell v. Horton,
680 N.E.2d 1272, 1274 (Ohio Ct. App. 1996) (Ohio law).
Plaintiffs' cause of action for tortious interference with advantageous
business relationships must also be dismissed. To state a claim for
tortious interference with advantageous business relationships under New
York law, a plaintiff must allege that the defendant interfered with an
existing business relationship between the plaintiff and a third party,
either for the sole purpose of harming the plaintiff or by wrongful
means. See Hannex Corp. v. GMI, Inc., 140 F.3d 194, 205-206 (2d Cir.
1998); PPX Enters. v. Audio Fidelity Enters.,
818 F.2d 266, 269 (2d Cir.
1987); NBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., 664 N.E.2d 492,
496-97 (N.Y. 1996). Wrongful means include "physical violence, fraud or
misrepresentation, civil suits and criminal prosecutions, and some
degrees of economic pressure; they do not, however, include persuasion
alone although it is knowingly directed at interference" with a business
relationship. Guard-Life Corp. v. S. Parker Hardware Mfg. Corp.,
406 N.E.2d 445, 449 (N.Y. 1980).
Plaintiffs allege that Levy interfered with their existing
relationships with the Distributors, thereby harming plaintiffs. (Am.
compl. ¶ 181.) Plaintiffs do not, however, allege that Levy intended
solely to harm them. Indeed, the Amended Complaint refers to Levy as a
competitor or potential competitor. (Am. Compl. ¶¶ 69, 76.)
Accordingly, plaintiffs must show wrongful means. Plaintiffs make three
arguments as to wrongful means. (Pls.' Levy Mem. at 8-9.) First, they
claim that Levy and the Distributors engaged in illegal anticompetitive
conduct. This argument fails because the Court has dismissed plaintiffs'
antitrust claims. Second, plaintiffs claim that Levy breached the
Purchase Agreement by negotiating with the Distributors outside of
plaintiffs' presence. Plaintiffs cite to no authority, however, in support
of their claim that a breach of contract constitutes "unlawful means" as
defined in Guard-Life. Even if an allegation of breach of contract were
sufficient, the contract in question squarely contradicts plaintiffs'
allegations.*fn6 The only section of the Purchase Agreement that
restricted Levy's ability to negotiate with the Distributors outside of
the plaintiffs' presence concerned negotiations for "Supplier
Concessions." (Aff. of Richard L. Fenton in Supp. of Def. Chas. Levy
Circulating Co.'s Mem. of Law in Supp. of its Mot. to Dismiss Pursuant to
Rule 12(b)(6) ("Fenton Aff.") Ex. B at § 7.15.) The Purchase
Agreement contained no restriction on Levy's ability to deal with the
Distributors regarding any other matter. Plaintiffs' third argument is
that Levy made fraudulent representations to plaintiffs in the course of
negotiating the Purchase Agreement. However, these negotiations did not
begin until late 1998. See supra p. 6. This is simply too late to be
relevant here. The Distributors allegedly began to permit Levy to sell in
at least some of the plaintiffs' territories beginning in 1995 or 1996.
(Am. Compl. ¶ 76.) Any interference had already occurred before any
alleged misrepresentations were made in 1998. Accordingly, plaintiffs
allege no wrongful means and so fail to state a claim for tortious
interference with advantageous business relationships under New York
Under Ohio law, pleading tortious interference with business
relationships requires five allegations: (i) a business relationship
between plaintiff and a third party; (ii) knowledge of that relationship
by the defendant; (iii) intentional and improper action by the defendant
to terminate the business relationship; (iv) a lack of privilege; and (v)
damages. See Brookside Ambulance, Inc. v. Walker Ambulance Svc.,
678 N.E.2d 248, 252 (Ohio Ct. App. 1996). Where the parties are
competitors, determination as to whether the defendant's conduct was
improper is governed by section 768 of the Second Restatement of Torts.
Brookside, 678 N.E.2d at 252. Section 768 provides
that a defendant's
actions are not improper if (i) the business relationship concerns a
matter involved in the competition between plaintiff and defendant; (ii)
the defendant does not employ wrongful means; (iii) the defendant's
action does not create or continue an unlawful restraint of trade; and
(iv) the defendant's purpose is at least partly to advance its interest
in competing with the plaintiff. 678 N.E.2d at 252-53.
Levy argues that it meets the criteria of section 768. (Levy's Mem. at
9-12.) The relationships between plaintiffs and the Distributors clearly
concern a matter in which plaintiffs and Levy allegedly competed,
wholesale sales of publications. Levy is not alleged to have employed
wrongful means as defined under Ohio law for the reasons set forth above
with respect to New York law. Cf. Willis Refrigeration, Air Conditioning
& Heating, Inc., v. Maynard, No. CA 99-05-047, 2000 WL 36102, at *9 (Ohio
Ct. App. Jan. 18, 2000) (defining wrongful means as including "violence,
fraud, civil suits, and criminal prosecution."), reconsideration granted
in part, 2000 WL 270048 (Ohio Ct. App. Mar. 13, 2000). Levy's action
cannot now be said to create or continue an unlawful restraint of trade
because the Court has dismissed plaintiffs' antitrust claims. Lastly, as
set forth above, plaintiffs cannot dispute that Levy's actions were at
least partly designed to advance Levy's competitive interest. Since Levy
meets the criteria of section 768, its actions were not improper, and
plaintiffs fail to state a claim under Ohio law. As a result of plaintiffs
failure to state a claim under New York or Ohio law, the Court dismisses
plaintiffs' cause of action for tortious interference with advantageous
F. Breach of the Implied Covenant of Good Faith and Fair Dealing by
Levy (Count V)
Plaintiffs contend that Levy violated the Purchase Agreement's implied
covenant of good faith and fair dealing by negotiating with the
Distributors for Levy to sell magazines and books in plaintiffs'
territories. Levy argues that this cause of action does not exist under
applicable law. (Levy's Mem. at 12-13.) It is undisputed that Illinois law
governs the contract between Levy and the plaintiffs. (Fenton Aff. Ex. B
at § 13.10.) Under Illinois law, there exists no independent action
for breach of the implied covenant of good faith and fair dealing. Voyles
v. Sandia Mortgage Corp., No. 89201, 2001 WL 549486 (Ill. May 24, 2001).
Accordingly, the Court dismisses this cause of action.
G. Unfair Competition by Levy (Count VI)
Plaintiffs allege that Levy engaged in unfair competition by obtaining
plaintiffs' confidential business information and then using it to induce
the Distributors to allow Levy to sell to retailers in plaintiffs'
territories. (Am. Compl. ¶¶ 192-199.) Levy argues that this claim is
preempted by plaintiffs' trade secrets claim against Levy pursuant to Ohio
Revised Code Ann. § 1333.63. (Levy's Mem. at 13-14.) The Court finds
that plaintiffs' claim under § 1333.63 preempts plaintiffs' cause of
action for alleged unfair competition. The factual allegations underlying
this cause of action are the same, or substantially the same, as those
underlying plaintiffs' claim against Levy under § 1333.63. (Compare
Am. Compl. ¶¶ 192-99 with Am. Compl. ¶¶ 223-33.) Ohio Revised Code
Ann. § 1333.67 provides, in pertinent part:
(A) Except as provided in division (B) of this
section, sections 1333.61 to 1333.69 of the Revised
Code displace conflicting tort, restitutionary, and
other laws of this state providing civil remedies for
misappropriation of a trade secret.
(B) These sections do not affect any of the
(1) Contractual remedies, whether or not based on
misappropriation of a trade secret. . . .
The plain language of this statute provides that plaintiffs' tort claim
for unfair competition, which is based upon misappropriation of
plaintiffs' trade secrets, is preempted. Ohio Rev. Code Ann. §
1333.67; see also Glasstech, Inc. v. TGL Tempering Sys., Inc.,
50 F. Supp.2d 722, 730-32 (N.D. Ohio 1999). Plaintiffs appear to argue
that § 1333.67(B)(1) allows a party to bring a tort claim for
misappropriation against another party with which it has a contractual
relationship. (Pls.' Distributor Mem. at 24; Pls.' Levy Mem. at 13.) This
argument is contrary to the plain language of § 1333.67 and is
unsupported by citation to any authority. Similarly unavailing is
plaintiffs' citation to cases that predate the adoption of § 1333.67.
(Pls.' Levy Mem. at 13.) Because plaintiffs' unfair competition claim
against Levy sounds in tort, rather than contract, under § 1333.67 it
is preempted by plaintiffs' § 1333.63 claim against Levy.
Accordingly, this cause of action is dismissed.
H. Breach of Fiduciary Duty and Breach of the Duty to Hold in
Confidence By All Defendants (Count VII)
Plaintiffs allege that the Distributors and Levy, by virtue of their
respective contractual relationships with plaintiffs, had fiduciary
duties to plaintiffs, as well as duties to hold in confidence plaintiffs'
proprietary business information. These duties were breached, plaintiffs
allege, when the defendants used plaintiffs' confidential information to
solicit plaintiffs' customers and to enable Levy to sell to retailers in
plaintiffs' territory. (Am. Compl. ¶¶ 201-209.) The defendants argue
that, under applicable law, they had no fiduciary obligations to
plaintiffs and no duties to hold information in confidence. (Distributors'
Mem. at 18-20; Levy's Mem. at 14-15.) The Court finds that defendants had
no such duties to plaintiffs.
1. Alleged breach of fiduciary duty or duty of confidence by the
As against the Distributors, the legal prerequisites for the alleged
duties are not met. The Distributors and plaintiffs address this question
solely under New York law; accordingly the Court assumes that New York
law applies. Under New York law, a distributorship agreement creates a
confidential relationship, giving rise to fiduciary duties, only in rare
circumstances. Abernathy-Thomas Eng. Co. v. Pall Corp., 103 F. Supp. 2 d
582, 602 (E.D.N.Y. 2000). Specifically, "a long-standing distributorship
relationship in which the manufacturer dominated the distributor, and
pursuant to which the distributor was contractually required to disclose
proprietary information regarding its customers to the manufacturer,
creates a duty on the part of the manufacturer not to use that
information to the detriment of the distributor." Id. at 604
(construing, among others, A.S. Rampell, Inc. v. Hyster Co., 144 N.E.2d 371
(N.Y. 1957) and Zimmer-Masiello, 552 N.Y.S.2d 935). Here, the
Distributors stand in the position of Pall's manufacturer and plaintiffs
stand in the position of Pall's distributor. Plaintiffs do not meet the
Pall standard, however, because they do not allege that they were
"contractually required" to provide
confidential information to the
Distributors. Plaintiffs allege only that the Distributors "had knowledge
of plaintiffs' business" (Am. Compl. ¶ 201) and that "plaintiffs'
business information was constantly being provided" to the Distributors.
(Am. Compl. ¶ 203.) Plaintiffs' (apparently) voluntary sharing of
information with the Distributors does not provide the rare circumstances
giving rise to a fiduciary duty or other duty of confidence.
Accordingly, this cause of action is dismissed as against the
2. Alleged breach of fiduciary duty or duty of confidence by Levy
It is undisputed that the contract between Levy and the plaintiffs is
governed by Illinois law. (Fenton Aff. Ex. B at § 13.10.) Plaintiffs
offer no authority supporting their contention that a franchise or
distribution contract may give rise to a fiduciary duty or duty of
confidence under Illinois law. As Levy points out, the rule under
Illinois law is to just the opposite effect. See, e.g., Original Great
American Chocolate Chip Cooke Co. v. River Valley Cookies, Ltd.,
970 F.2d 273
, 280 (7th Cir. 1992) (under Illinois law, "parties to a
contract are not each other's fiduciaries . . . even if the contract is a
franchise"). The two specific contractual provisions upon which
plaintiffs rely also fail to support its argument. First, plaintiffs argue
that section 7.15 "created a fiduciary duty of Levy not to deal with any
of the . . . Distributors concerning plaintiffs. . . ." (Pls.' Levy Mem.
at 15.) As noted above, see supra p. 38, section 7.15 concerns only
negotiations between Levy and the Distributors regarding "Supplier
Concessions," not all negotiations between Levy and the Distributors, or
even all negotiations between Levy and the Distributors concerning
plaintiffs. Plaintiffs' contention that this limited restriction imposed a
"fiduciary duty" is an unjustified legal conclusion which the Court
rejects as contrary to Illinois law. Second plaintiffs argue that section
7.4, entitled "Confidentiality; Public Announcements" created a duty of
confidence for Levy. (Pls.' Levy Mem. at 16.) The plain language of
section 7.4, however, demonstrates that the confidentiality obligations
only extended to the Purchase Agreement itself. No confidentiality
requirement is imposed concerning any information that either side
learned about the other's business during the course of negotiations.
Accordingly, plaintiffs have failed to establish that Levy had any
fiduciary duty or duty of confidence under Illinois law. This cause of
action is dismissed as against Levy.
I. Violation of Ohio Revised Code Ann. § 1333.63 By Murdoch
(Count VIII) and By Levy (Count IX)
Plaintiffs allege that Murdoch misappropriated plaintiffs' trade
secrets. specifically plaintiffs' "Data System" for magazine
distribution, in violation of Ohio Revised Code Ann. § 1333.63. (Am.
Compl. ¶¶ 210-22.) Murdoch argues that plaintiffs have failed to
sufficiently allege willful and malicious conduct. (Distributors' Mem. at
20-21.) Plaintiffs allege that Levy misappropriated plaintiffs' trade
secrets, including customer lists and financial information, in violation
of § 1333.63. (Am. Compl. 223-33.) Levy argues that plaintiffs'
allegations do not satisfy the definitions of "trade secret" or
"misappropriation" under Ohio law. (Levy's Mem. at 15-17.) The Court
finds that plaintiffs have not adequately alleged trade secrets within
the meaning of the Ohio Uniform Trade Secrets Act. A trade secret is
defined as information that both "derives independent economic value,
actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can
economic value from its disclosure or use" and "is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy."
Ohio Rev. Code Ann. § 1333.61(D). In Count VIII, plaintiffs allege
that the information in question was "not known to third persons and
constituted valuable trade secrets of the plaintiffs." (Am. Compl. ¶
213.) In Count IX, plaintiffs allege that the information in question was
"proprietary to plaintiffs, not known to third persons, and constituted
valuable trade secrets of the plaintiffs." (Am. Compl. ¶ 226.) Even
assuming these allegations satisfy the first prong of the trade secret
definition, they plainly do not satisfy the second prong. There is no
factual allegation as to any efforts that plaintiffs undertook to
maintain the secrecy of the information in question. Absent such
allegations, plaintiffs have not adequately pled the existence of a trade
secret, without which there can be no misappropriation of a trade
secret. Plaintiffs' conclusory allegation that the information was a
trade secret is not enough. A plaintiff must do more to state a claim
than simply allege a legal conclusion. Accordingly, plaintiffs' causes of
action against Murdoch (Count VIII) and Levy (Count IX) under §
1333.63 are dismissed.
J. Tortious Destruction of Business Against all Defendants (Count X)
Plaintiffs allege that Levy and the Distributors tortiously destroyed
plaintiffs' business. (Am. Compl. ¶¶ 234-43.) Defendants argue that
this count states no cognizable claim under New York or Ohio law.
(Distributors' Mem. at 21-22; Levy's Mem. at 17-18.) The Court finds that
this cause of action must be dismissed for failure to state a claim under
applicable law. As an initial matter, the Court agrees with the defendants
that "tortious destruction of business" is not an independent cause of
action under either New York or Ohio law. The New York cases cited by
plaintiffs do not establish a new and distinct tort of destruction of
business. Rather, they deal with established torts such as fraud or
tortious interference with contract. See North Shore Bottling Co. v. C.
Schmidt & Sons, Inc., 239 N.E.2d 189 (N.Y. 1968) (fraud); Rich v. New
York Cent. & Hudson River R.R. Co., 87 N.Y. 382 (1882) ("actual and
affirmative fraud"); Albermarle Theatre, Inc. v. Bayberry Realty Corp.,
277 N.Y.S.2d 505 (App. Div. 1967) ("inducing the alleged breach of
contract"); Schisgall v. Fairchild Publ'ns, Inc., 137 N.Y.S.2d 312
(Sup.Ct. 1955) (prima facie tort). The Ohio cases cited by plaintiffs are
of similar import, dealing with established torts or with contract
claims. See Garman v. Y.M.C.A., No. 1720, 1983 Ohio App. LEXIS 12731
(Ct. App. May 3, 1983) (breach of lease agreement); Energystics v.
Fairbairn, No. L-80-029, 1981 Ohio App. LEXIS 11446 (Ct. App. May 15,
1981) (breach of confidentiality agreement and breach of fiduciary
duty); Bishop v. East Ohio Gas Co., No. 18969, 1943 Ohio App. LEXIS 874
(Ct. App. June 28, 1943) (destruction of personal property). rev'd
56 N.E.2d 164 (Ohio 1944).
Even though "tortious destruction of business" is not a cognizable
claim under applicable law, New York law may permit some recourse. In
certain circumstances, New York courts recognize a claim for prima facie
tort. See, e.g., Mellencamp v. Riva Music Ltd., 698 F. Supp. 1154,
1158-59 (S.D.N.Y. 1988) (construing Schisgall); Curiano v. Suozzi,
469 N.E.2d 1324, 1327 (N.Y. 1984). Ohio, however, does not recognize a
cause of action for prima facie tort. Costell v. Toledo Hospital,
527 N.E.2d 858 (Ohio 1988). Thus, there is a conflict of laws and the
Court must determine which state's law applies. A federal court
considering state law claims
under either diversity jurisdiction or
supplemental jurisdiction applies the choice of law principles of the
state in which the Court sits. Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487 (1941) (diversity jurisdiction); North Atlantic
Instruments, Inc. v. Haber, 188 F.3d 38, 43 (2d Cir. 1999) (supplemental
jurisdiction). New York courts apply "interest analysis" to determine
choice of law in tort cases. Frink America, Inc. v. Champion Road
Machinery, 48 F. Supp.2d 198, 205 (N.D.N.Y. 1999); Dorsey v. Yantambwe,
715 N.Y.S.2d 566, 569 (App. Div. 2000). Interest analysis calls for
application of the law of the jurisdiction with the greatest contacts with
the matter in dispute. Frink, 48 F. Supp. 2d at 205; Dorsey, 715 N.Y.S.2d
at 569. The most significant contacts are almost exclusively the
domiciles of the parties and the locus of the tort. Frink, 48 F. Supp. 2d
at 205; Dorsey, 715 N.Y.S.2d at 569. Where the laws in conflict regulate
conduct, the law of the jurisdiction where the tort occurred generally
applies. Frink, 48 F. Supp. 2d at 205. Where the defendants' conduct
occurred in one place and the plaintiffs' injuries were suffered in
another, the tort is considered to have occurred where the plaintiffs
suffered injury. Id. Here, plaintiffs are domiciled in Ohio. The various
defendants are domiciled in New York, New Jersey, or Illinois.
Defendants' allegedly tortious conduct occurred in New York, New Jersey,
Illinois, and possibly other states. Plaintiffs suffered any alleged
injuries to their businesses in Ohio, where plaintiffs are domiciled and
have their principal places of business. See La Luna Enters., Inc. v. CBS
Corp., 74 F. Supp.2d 384, 389 (S.D.N.Y. 1999); Frink, 48 F. Supp. 2d at
205. Thus, Ohio has the greatest interest and its law should apply. Under
Ohio law, plaintiffs may not state a claim for prima facie tort.
Costell, 527 N.E.2d 858. Accordingly, the Court dismisses the cause of
action alleged in Count X.
K. Breach of Confidential Relationship, Breach of Fiduciary Duty, and
Common Law Misappropriation by Murdoch (Count XI)
Plaintiffs allege that Murdoch misappropriated plaintiffs' "Data
System" and, in so doing, breached Murdoch's fiduciary duties and duties
of confidence to plaintiffs. (Am. Compl. ¶¶ 244-60.) Murdoch argues
that this count is barred by plaintiffs' claim against it under Ohio
Revised Code Ann. § 1333.63. (Distributors' Mem. at 22-23.) The Court
finds that the causes of action in this count must be dismissed. For the
reasons set forth in Section V.H, supra, Murdoch had neither fiduciary
duties to, nor a relationship of confidence with, plaintiffs. For the
reasons set forth in Section V.G, supra, plaintiffs' cause of action
against Murdoch under Ohio Revised Code Ann. § 1333.63 precludes
plaintiffs' common law claim against Murdoch for misappropriation of the
same information. Accordingly, all of the causes of action in this count
L. Violation of Ohio Revised Code Ann. § 4165.02(A)(12) by
Levy (Count XIV)
Plaintiffs allege that Levy engaged in deceptive trade practices, in
violation of Ohio Revised Code Ann. § 4165.02(A)(12), by making false
statements regarding the circumstances under which Levy was charging
lower prices than plaintiffs. (Am. Compl. ¶¶ 307-313.) Levy argues
that it made no "price reductions" within the meaning of §
4165.02(A)(12) and that plaintiffs have also not pled that anything Levy
stated as to its prices was material. (Levy's Mem. at 20-22.) The Court
finds that plaintiffs
have failed to plead the required element of
materiality. Section 4165.02(A) provides, in pertinent part, that, "[a]
person engages in a deceptive trade practice when, in the course of the
person's business, vocation, or occupation, the person does any of the
following . . . (12) Makes false statements of fact concerning the
reasons for, existence of, or amounts of price reductions."
Levy first argues that this statute only prohibits false statements
about the reasons for sales, and that Levy did not reduce its own
prices. (Levy's Mem. at 21.) This proposition is refuted by an Ohio
decision cited by Levy. In Diamond Co. v. Gentry Acquisition Corp.,
531 N.E.2d 777, 782-83 (Ohio Ct. Com. Pl. 1988), the Court expressly
considered a store's allegation that a competitor had violated the
predecessor statute to § 4165.02(A)(12) by advertising false reasons
for having lower prices than other stores. Although the court found
that, on the facts presented, plaintiff did not show a likelihood of
success on the merits, its consideration of the claim demonstrates that
the predecessor statute covered not only statements about sales, but
statements about relative prices among different businesses. Section
4165.02(A)(12) and its predecessor are identical in all material
respects. Compare Ohio Rev. Code Ann. § 4165.02(A)(12) with former
Ohio Rev. Code Ann. § 4165.02(J), quoted in Diamond, 531 N.E.2d at
779. Thus, Levy's first argument does not compel dismissal. Levy's second
argument, that plaintiffs rely on implied statements, is also
unavailing. (Levy's Mem. at 21.) As Levy concedes, plaintiffs also allege
actual statements by Levy concerning its prices. (Id.) Thus, even if
implied statements are insufficient, plaintiffs have alleged actual
statements, allegations which are clearly sufficient. Levy's final
argument, however, is meritorious. As Levy points out, Ohio courts
require that a statement allegedly in violation of § 4165.02(A) be
material. Diamond, 531 N.E.2d at 781-82. Plaintiffs nowhere allege that
any statements by Levy as to Levy's lower prices were in any way material
to any of Levy's customers. Plaintiffs have thus failed to allege a
required element of their cause of action under § 4165.02(A)(12).
Accordingly, the Court dismisses this cause of action (Count XIV).
M. Unjust Enrichment, Restitution, and Breach of Contract Implied in
Law by All Defendants (Count XV)
Plaintiffs allege that the Distributors were unjustly enriched or
breached a contract implied in law by allowing Levy to sell to certain
retail customers in plaintiffs' territories. (Am. Compl. ¶¶ 314-16,
318-21.) Plaintiffs also allege that those same sales by Levy constituted
unjust enrichment or breach of a contract implied in law by Levy. (Am.
Compl. ¶¶ 314, 317, 318-21.) The Distributors argue that the cause of
action against them is vague and conclusory. (Distributors' Mem. at
31-32.) Levy argues that plaintiffs have failed to allege that plaintiffs
conferred any benefit on Levy. (Levy's Mem. at 22.) The Court finds that
plaintiffs have failed to state a claim against the Distributors or Levy.
1. The Distributors
Plaintiffs' cause of action against the Distributors under Count XV is
barred by the Statute of Frauds. The parties address this cause of action
against the Distributors only under New York law; accordingly, the Court
assumes that New York law applies. Under New York law, a cause of action
for unjust enrichment or quasi-contract requires proof that (i) defendant
was enriched (ii) at plaintiff's expense (iii) in circumstances where it
would be unjust for defendant not to compensate
plaintiff. Vox v.
Makela, No. 99 Civ. 10097 (AGS), 2000 WL 1708181, at *4 (S.D.N.Y. Nov.
14, 2000). Plaintiffs claim that the Distributors were enriched at
plaintiffs' expense because the Distributors required that plaintiffs
purchase publications in exchange for exclusive territories, then took
away the exclusive territories while plaintiffs were still purchasing the
publications. (Am. Compl. ¶¶ 315-16.) This claim constitutes a
restatement of plaintiffs' breach of contract claim against the
Distributors, which the Court dismissed on Statute of Frauds grounds. No
cause of action for unjust enrichment may be asserted that is repetitive
of a contract claim dismissed because of the Statute of Frauds. See
Strauss v. Fleet Mortgage Corp., 2001 WL 470814 (N.Y. App. Div. Apr. 30,
2001). Accordingly, plaintiffs' cause of action in Count XV against the
Distributors is dismissed.
As against Levy, plaintiffs have also failed to plead the necessary
elements of their alleged cause of action. The parties address the cause
of action against Levy under Ohio law; accordingly, the Court assumes
that Ohio law applies. Under Ohio law, a claim of unjust enrichment
requires a showing of (i) plaintiff's conferring of a benefit upon
defendant; (ii) defendant's knowledge of the benefit; and (iii)
defendant's retention of the benefit under circumstances where it would
be unjust to do so without payment. White v. Smith & Wesson,
97 F. Supp.2d 816, 829 (N.D. Ohio 2000). Levy's replacing plaintiffs as
the wholesaler for certain allegedly valuable customers in plaintiffs'
territory does not under law amount to a benefit conferred upon Levy by
plaintiffs. These allegations demonstrates only the fact of competition.
Plaintiffs argue in their memorandum that confidential information
obtained from plaintiffs by Levy, in breach of the Purchase Agreement,
constitutes a benefit. (Pls.' Levy Mem. at 25-26.) To the extent that
this claim depends upon the existence of the Purchase Agreement, the fact
that there was such a contract precludes a claim for unjust enrichment.
Patterson v. Village of Chesapeake, No. 95CA19, 1996 WL 668831. at *2
(Ohio Ct. App. Nov. 15, 1996) ("Where there is an express contract
between the parties, none can be implied. . . . That is to say that a
theory of quasi contract or unjust enrichment is not available where
there exists an express contract between the parties.") To the extent
that this claim does not depend upon the contract, but is based on Levy's
alleged appropriation of confidential information, the claim is precluded
by plaintiffs' cause of action against Levy under Ohio Revised Code Ann.
§ 1333.63. See supra Section V.G. Accordingly, the claim under Count
XV is dismissed as against Levy.
VI. LEAVE TO REPLEAD
"It is the usual practice upon granting a motion dismiss to allow leave
to replead. . . . Although leave to replead is within the discretion of
the district court, refusal to grant it without any justifying reason is
an abuse of discretion." Cortec, 949 F.2d at 48. One justifying reason is
futility of the amendment. In re American Exp. Co. Shareholder
Litigation, 39 F.3d 395
, 402 (2d Cir. 1994). Counts II, III, IV, VI, X,
XII, XIII, and XV are all dismissed with prejudice because any amended
pleading of the causes of action therein would be futile. The same is true
of Count V to the extent that it asserts causes of action for breach of
the implied covenant of good faith and fair dealing or for inducing
breach of contract, Count VII to the extent that it is asserted against
Levy, and Count XI to the extent that it alleges common law
For the reasons set forth above, plaintiffs' causes of
action enumerated above in this paragraph fail as a matter of law. The
Court finds that plaintiffs are unable state a claim as to the causes of
action asserted therein. Those motions to dismiss the causes of action
not enumerated in this paragraph are granted with leave to plaintiffs to
For the reasons set forth above, defendants' motions to dismiss all of
the counts in the Amended Complaint are granted. Murdoch's motion to
dismiss the original Complaint is denied as moot as a result of
plaintiffs having filed the Amended Complaint. In the event that
plaintiffs propose to file a Second Amended Complaint, consistent with
Section VI, supra, they shall file such complaint no later than June 21,